2007
EXECUTIVE SUMMARY
Team B
Michelle Barnes
Sharl Flowers
Alex Layton
Andrew Miller
Anh Linh Tran
WAL-MART STORE INC.
1/31/2007
TABLE OF CONTENTS
INTRODUCTION
2
BACKGROUND
2
I.
CURRENT SITUATION
OVERVIEW
II.
STRATEGIC MANAGERS
III.
EXTERNAL ENVIRONMENT
IV.
INTERNAL ENVIRONMENT
V.
ANALYSIS OF STRATEGIC FACTORS
VI.
STRATEGIC ALTERNATIVES AND RECOMMENDED
STRATEGY
VII. IMPLEMENTATION
VIII. EVALUATION AND CONTROL
This report discusses an evaluation of Wal-mart’s strategic management. The purpose of
this evaluation is comparing and analyzing our performance in the last five years that helps us
better measuring our operation and financial conditions as well as enable us to accomplish our
future objectives and to continue growth of business in the hypercompetitive environment. This
is a critical review the strengths and weaknesses of each area of Wal-mart’s domestic and
international strategies and programs to identify all effective programs and to detect any
defective one and make necessary adjustment.
BACKGROUND
I.
Current situation
A. Corporation performance: Overall there is an increase in sales and cash flow from
operating activities. Also there is a growth in national and international business
expansion. Here are some keyed terms in 2006
 Continuous growth in sales and earnings. Great international expansion for the
last five years.
 Financial: Current ratio is 0.9%. Earnings per share increased from $2.41 in
2005 to $2.68 in 2006.
 Performance:
o Highpoint: increase in sales of 9.5% comparing to last year. Increase cash
flow from operating activities from $10,267 million to $11,231 million.
o Low point: low return on assets of 8.91%, low return on shareholders’
equity with 22.5%, negative price-earnings per share ratio caused a decline
in share price from $56.98 in 2002 to $46.11 in 2006 (1st decline in 10
years).
B. Strategic posture:
Mission: “Always low price,” saving people money so they can live better regardless of
background or where they may live and to build a better life.
Objectives: “Lines extension and stores expansion.”
Strategies: Wal-Mart’s current strategies concentrate on “customer satisfaction and team
spirit.” They are implemented through the following programs
 Domestic strategies and programs:
 The Supercenters with full general merchandise discount store stocked
with full-line grocery, food court, and services such as banking, video
rental, beauty salons, new store openings, expansion to more states.
 Add larger space and more services to the Sam’s Clubs locations.
 Most outstanding program was the “Green” marketing concerning
environment sustainability (manufacturing, use, and disposal).


A private brand program such as Ol Roy dog food, Sam’s Choice,
Great Value, Equate, and Spring Valley on groceries and household
products.
 A fashion program emphasizes on the clothing line.
 An inventory control program using RFID technology, data
warehouse, and computerized tracking system that reduces out-ofstock issue 16%.
International strategies and programs:
 Acquisition: Woolco discount stores in Canada (successful); 74 stores
of Interspar in Germany; 232 ASDA stores (Briain’s 3rd largest
supermarket group) in England; more than 360 CARHCO
supermarkets in Central America (Costa Rica, El Salvador, Guatemala,
Honduras, and Nicaragua); 3 retail chains stores in Europe; Seiju
general merchandise stores in Japan; and other retailers in Korea but
later withdrawn from French, Japan, and Korea.
 Mergers and joint ventures with 599 stores, 105 Supercenters, and 70
Sam’s Clubs in Mexico; 51 Supercenters, 3 Sam’s Clubs, and 2
Neighborhood Markets in China;
Policies: In supporting the firm’s strategies, Wal-Mart’s current policies include
cheerfully offer refunds, store credits, and rain check.
OVERVIEW
The dataset utilized in this situation analysis includes comparison of corporate
performance over the five-year period (2001-2006). It is also analyzing the effectiveness and
efficiency of its output, behavior, and input controls based on the external and internal
environment conditions. They were represented by the current ratio (liquidity), earnings per
share and return on equity (profitability), assets turnover ratio (activity), and price-earnings per
share ratio. This comparison indicated that Wal-mart’s current ratio was 0.9%, assets turnover
was 8.91%, and negative price/earnings per share ratio. Also an analysis indicated the firm’s
stock price increase of 9.9% but it is considered low increase rate comparing to the stock price
increase of our competitors at the rate from 12.45 to 367%.
II.
Strategic Managers
A. Board of Directors include:
a. 13 members, 11 are outsiders.
b. Organized into 5 committees
o The Audit Committee
o The Compensation, Nominating, and Governance Committee (CNGC)
o The Executive Committee (EC)
o The Stock Option Committee (SOC) and
o The Strategic Planning and Finance Committee (SPFC)
c. 2 board members controlled close to 41% of the shares outstanding.
d. 2 chair/CEOs may have potential conflict of interest as “research shows that
corporations with a combined Chair/CEO have a greater likelihood of fraudulent
financial reporting when CEO stock options are not present(54).”
e. One member, David D. Class, is 70 and facing retirement age
f. Outstanding diversity
g. Each director attended at least 75% of meetings.
B. Top Management:
a. 25 corporate officers, CEOs assigned to each business unit (Wal-mart U.S., Sam’s
Club, and Wal-mart International)
b. Lee Scott was only the third CEO in the entire history of Wal-Mart when he was
selected to the position.
c. During the 12 years David Glass, the previous CEO held the position, sales grew
from 16 billion to 16.5 billion annually.
d. Uniquely qualified individuals
III.
External Environment
a) Natural Physical Environment
o The gasoline prices increase cause the closing of Wal-Mart’s operation in Germany
due to reduce of customer visit the stores
o , we do know that Wal-Mart is rising to the challenge of sustaining a green culture in
its operations, which will keep them up to the challenges they may face in the future
with their natural environment.
b) Societal Environment
o Economic
 The increase of consumer debts, interest, and unemployment rates caused rivalry
in the retailing industry on low-price. Wal-Mart also was facing the cost increase
due to currency translation, increase of government restriction in the countries of
its subsidiaries, and changes in local legislature.
o Technological
 Wal-Mart positively responded to the increase of global market, cloud computing
technology, and virtual community with high-speed computerized inventory
control, data warehouses, and real-time reporting system.
o Political-Legal
 Wal-Mart’s oversight on management of its subsidiaries outside the United States
and caused in violation of immigration, and fair labor regulations.
o Socio-cultural
 Wal-Mart responded to the increase of environment awareness in society with
promoting the concept of “green” marketing and support American manufacturing
with the “Buy American” program. The firm has centered its operations on the
low income customer, but recent made changes to including many other
demographic types into its plan.
c) Task Environment
o Threats of new entrants in the wholesales segment such as Costco, BJ, etc… with
direct attack to Sam’s Clubs but not Wal-Mart’s low price, product lines, and
convenience locations.
o The bargaining power of suppliers is low. Goods can be purchased from many
different locations and suppliers.
o Rivalry in the market that Wal-Mart competes in is at an all time high. Many
companies are beginning to grow and expand into markets and areas which Wal-Mart
has been in for years, and as the growing population of special interest groups
expands, so does the dislike for Wal-Mart’s greedy business actions.
IV.
Internal Environment
a) Corporate Structure
o Wal-Mart is structured into three business units. Wal-Mart USA, Sam’s Club, and
Wal-Mart International. The corporate majority shares are held by family members of
its founders and its centralized management control with the headquarters out of the
Bentonville home.
b) Corporate Culture
o The firm’s strong corporate culture of, “the Wal-Mart Way…was a reflection of the
values of its founder…..southern, rural, conservative (19-23),” can be its strength
(cross-training and carry out its mission) as the same time can be a weakness (reject
to changes of mission, objectives, strategies, or policies).
c) Corporate Resources
o Wal-Mart operates under economic of scales with economic value added products
and services and technology competence that promote the firm’s maximum buying
power, ability to maintain its market position, and financial stability and business
growth.
d) Summary of Internal Factors (Core Competencies)
o The firm’s abilities to find opportunities and its distinctive competencies (outputs,
behavior, and inputs controls) are not replicable. With this competitive advantage,
Wal-Mart can find propitious niche and win the market competition.
The current financial condition shows there is a strategic inflection point or a
performance gap exists in the firm’s strategies and programs that need the emphasis of behavior
and input controls. It requires a comprehensive analysis of the market that includes analyzing of
strategic factors using the Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis
and Strategic Factor Analysis Summary (SFAS) Matrix.
V.
Analysis of Strategic Factors (chapter 6 + 7 - pinpoint problem areas and review an
revise the corporate mission and objectives)
Wal-Mart has established a program to ensure awareness of our long-standing “Open
Door” policy and encourage employees to report all ethics concerns to the management and
encourage managers to complying with the policy and with the law. Wal-Mart has established a
responsibility center to play a critical role including to accomplish the company’s “global ethics
strategy and oversee ethics-related infrastructure, administration, and training (19-28).” It also
observes and administers an ethics hotline.
Wal-Mart has many internal and external strategic factors which are identified through
the SWOT analysis. SWOT divides into four situations: strengths, weaknesses, opportunities and
threats. In this analysis we focus on the most important factors for each situation which is
described below.
A. Key Internal and External Strategic Factors (SWOT)

Strengths: Wal-Mart’s most important strengths (internal factor) are defined
in the management of distribution and logistics. That include: operate under
economic of scales (stores located within the contact of the firm’s distribution
centers); accurate computerized inventory control systems with real-time
reports generated; economic value-added products and services. These gave
Wal-Mart a distinctive competency.

Weaknesses: The most impact on withdrawal of stores located outside of the
U.S. was culture differences due to the strong corporate culture (reflect its
founder background – southern conservative). It makes difficult to accept and
even refuse changes of the corporate mission, objectives, strategy, and
policies.

Opportunities: The firm’s international expansion is excellent opportunities.
With the inventory control system, Wal-Mart is able to speed up the market
reaction time and better detect buying trends in a timelier manner. Also
Expanding into the international market is an opportunity that enables WalMart’s financial growth, which leads to competitive advantage.

Threats: the Wal-Mart focus on low cost and centralized structure caused
oversight some ethical issues. This can result in losing skilled workers due to
low pay rate (who might leave Wal-Mart for other companies and the firm’s
distinctive competence might become transparency) and make easy for attack
from competitor.
B. Review of Current Mission and Objectives:
 Current mission is appropriates for output controls and effectively use of
resources (knowledge, skills, abilities, values, and motives)
 Current objectives is also appropriate but needs to modify (behavior and input
controls) in global culture awareness (capabilities). That can solve the global
ethic issue and effectively execute the firm’s strategy and policies in
promoting standardized product innovation as a competitive advantage (core
competency) for global expansion
After conducting a strategic audit that includes examination, evaluation, and analyzing;
the qualitative finding leads us to the strategic alternative and a recommended strategy is
presented along with implementation and evaluation and control as follows:
VI.
Strategic Alternative and Recommended Strategy (chapter 7 & 8 - rare,
consequential, directive)
After completing our SWOT analysis we found three possible strategic alternatives for
Wal-Mart to consider. Each of them has pros and cons to consider before making the best
decision. The three to consider are: the horizontal growth strategy (growth), the no-change
strategy (stability) and the turnaround strategy (retrenchment).
A. Alternatives:
1. Horizontal Growth Strategy: Wal-Mart can achieve this strategy, both
internally and externally, by expanding their operations into more
international locations while also offering more fashionable products both
domestically and internationally.
 The pros to this strategy include: the ability to form a joint venture
with another country (develop new products and technologies) and
acquisitions (purchasing other companies already operating in the
area). The cons to this strategy
 The cons to this strategy are the fact that Wal-Mart has already entered
some international markets and did not succeed. They had to withdraw
from South Korea because they failed to research the geographic and
demographic characteristics. They did not offer any products the
majority of customers shopped for.
2. No-Change Strategy: With this strategy Wal-Mart would not need to make
any major changes. The only competitor they have to worry about is Target
and at this point only minor changes would be necessary. Current operations
and policies would suffice to see Target’s direction.
 The major pro to this strategy is the fact they would not need to make
any changes to their current operations and policies, as changes always
have the potential to hurt a company. Wal-Mart is already on the right
track and has kept Target under them thus far.
 The major con to this strategy is Target could quickly advance ahead
of Wal-Mart in terms of the Fortune 500 list and reputation. Wal-Mart
would then have to take a much more serious direction that could get
them back to the top.
3. Turnaround Strategy: In this strategy Wal-Mart would place emphasis on
improving their operational efficiency. They could achieve this through
contraction which would include cutting back costs and expenses as well as
eliminating up to 10% of their employees. Wal-Mart does not have any
critical corporate problems yet because they are still doing better than Target.
 The greatest pro to this strategy would be the improved competitive
position because employees would get involved with many
productivity improvements. The company would then emerge from
this period much stronger and better organized than ever before.
 The major con to this strategy would occur if Wal-Mart did not
properly consolidate. They could potentially lose many key
employees. Consolidating (cutting cost and downsizing) is appropriate
but too much could put the company in a worse position allowing no
improvements. Does Wal-Mart need a turnaround strategy when it
current operates under economic of scale (efficiency)?
B. Recommended Strategy
After reviewing each of the proposed alternative solutions, we have concluded the best
strategy for Wal-Mart to implement is the horizontal growth strategy. This strategy is likely to be
more effective than the other two. Wal-Mart previously had most of their focus on the domestic
market and has done an excellent job with maintaining their current position. This strategy will
give them all the opportunity to further advance internationally with the possibility of gaining
new product lines and technologies. New product lines would give them the opportunity to
produce more fashionable merchandise (increasing sales) while advancing internationally. In
turn, they could bring new products or technologies to certain domestic locations as well.
The qualitative finding reflects there is a performance gap exists (withdrawal from
French, Japan, and Korea). Therefore, a pause/proceed with caution strategy for a short time
would be appropriate. It allows Wal-Mart to develop a corporate infrastructure and redesign its
strategic business units and to reengineering business process in achieving its synergy include
detailed laid-out job redesign (enlargement or enrichment) with cross-functional work teams and
employee flexibility by carefully hiring, promoting, and training especially with multi functional
in the multi-culture environment. That is effective communication and how to manage diverse
cultures (integration, assimilation, separation, or deculturation). Redesigning its strategic
business units and reengineering business process will prepare Wal-Mart to coordinated
strategies in the economies of scales to increase flexibility to adapt strategic implementation
processes and effectively use of collaborated tools to reduce time on extra steps readily for
mergers and multi-national acquisitions. Then continue with horizontal growth strategy.
VII.
Implementation (chapter 9 & 10)
A. TQM functions on the premise that the quality of the products and processes is the
responsibility of everyone who is involved with the creation or consumption of the products
or services offered by the organization. In other words, TQM capitalizes on the involvement
of management, workforce, suppliers, and even customers, in order to meet or exceed
customer expectations.
1. Wal-Mart could enter into a new agreement and expand to Australia. Australia is known
for the Outback and Wal-Mart carries a wide variety of outdoors gear. It would be a
joint effort between Marketing and the New Zealand government to develop a plan that
will bring adequate products to the country. This could result in a 15% increase in
revenue internationally for Wal-Mart.
2. IT and Marketing are instrumental in determining if logistically this market is a fit for
Wal-Mart. They can scout out the land and taste of locals to see if the need is there. IT
needs to verify that the cost for the telecommunications fees and equipment will be
worth the move. This would mean job relocation, hiring and training of locals. This could
be cost effective if the wage cost is low in these areas.
B. A program budget could be set aside that allocated $10 billion for any new acquisitions of
supercenters, discount chains or viable retail companies that would yield a profit within the
first year of operation under the Wal-Mart brand. A timetable should be imposed on all
steps of a business plan regardless if they are individual or not. This is less than 10% of WalMarts operating budget.
C. SOP’s are a must have for a viable businesses. Once a SOP is developed for the Australia
expansion, a very in depth overview can be obtained. Because the very nature of an SOP will
be to determine what is working and what is not. Since this is not Wal-Marts first
international venture, a model SOP can be used and should yield the same results as a new
one.
VIII. Evaluation and Control (chapter 11 & 12)
ALEX?
Via feedback systems, and the control of activities to ensure their minimum deviation
from plans.